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China pledge to avoid credit crunch lifts markets

Trader David O''Day, left, works on the floor of the New York Stock Exchange, Friday, June 21, 2013. Global stock markets reeled Monday, June 24, 2013 with Shanghai's index enduring its biggest loss in four years, after China allowed commercial lending rates to soar in a move analysts said was aimed at curbing a booming underground lending industry. (AP Photo/Richard Drew)

LONDON (AP) -- Global stocks recovered on Tuesday after China's central bank eased concerns about a credit crunch in the world's second-largest economy and U.S. indicators showed the economic recovery is gathering pace.

China's central bank had caused a global rout in markets on Monday when it moved to curb so-called shadow banking — unregulated lending to companies starved of credit by traditional banks. Investors worried that would cause an increase in borrowing rates for companies, hurting business.

On Tuesday, the central bank issued a statement saying it would act to keep credit markets functioning, if needed. That helped stocks rally in Europe and the U.S., though it came too late to help Asia, where the main markets closed lower.

Wall Street opened higher, with the Dow Jones industrial rising 0.5 percent to 14,727.29 in early trading and the broader S&P 500 advancing 0.5 percent to 1,580.32.

Trading was supported by a slew of new U.S. figures all showing the world's largest economy is strengthening.

Sales of durable goods rose 3.6 percent last month while house prices jumped 12.1 percent in April. A separate report showed sales of new homes accelerated in May to their fastest pace in five years, with sales rising 2.1 percent. Consumer confidence was also estimated to have increase, with the Conference Board's index jumping to 81.4 points in June from 74.3 in May, also the highest level in five years.

Market sentiment was also supported by European Central Bank President Mario Draghi's reassurances that existing crisis-fighting measures will remain in place.

Draghi said it was important to keep the central bank's bond-buying program, which has helped keep borrowing rates down across Europe for the past nine months, since there is uncertainty surrounding the policies of other central banks. That was a thinly-veiled reference to the Federal Reserve, which is expected to start winding down its monetary stimulus in coming months.

The Fed's bond-buying stimulus program has been keeping rates low, encouraging traders to buy riskier assets such as stocks and to invest in emerging markets, driving many equity indexes to record or multiyear highs. Concern over how markets will handle the end to the program, however, has made investors nervous and caused volatility.

Earlier in Asia, the Shanghai Composite Index fell another 0.2 percent to close at 1,959.51 after trading nearly 6 percent lower earlier in the day and shedding 5 percent the day before, its biggest loss in four years.

Japan's Nikkei 225 shed 0.7 percent to 12,969.34. South Korea's Kospi dropped 1 percent to 1,780.63 and Australia's S&P/ASX 200 was down 0.3 percent to 4,656. Stocks in the Philippines and Indonesia also declined while India and Singapore gained.

In energy markets, the benchmark oil contract for August delivery was down 22 cents to $94.96 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.49 to close at $95.18 on Monday.

In currencies, the euro was down 0.3 percent at $1.3076 while the dollar rose 0.1 percent against the Japanese yen, to 97.83 yen.

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Youkyung Lee in Seoul, South Korea, and Fu Ting in Shanghai contributed to this report.